Examination of Witnesses (Questions 380
- 399)
TUESDAY 29 JANUARY 2008
MR GRANT
HEARN AND
MR GREG
DAWSON
Q380 Mr Sanders: One final question.
There is a fear in seaside resorts that the existing mix of hotel
ownership tends to be locally owned and, therefore, the profit,
or surplus, that they make over the year is reinvested in that
area. With the brands coming in and taking over shops, chain stores,
taking over supermarkets, taking over restaurants, pubs and now
hotels, less of the profit that is made in that area stays in
that area. How would you address that?
Mr Hearn: I think it depends on
the ownership structure of the brand involved. A lot of what we
are seeing now is franchised brands coming into particularly the
UK from America and so on. The vast majority of the money from
franchised brands, by their very nature, is staying locally because
they are local operators who are using an international brand.
Q381 Mr Sanders: You are not a franchise.
Mr Hearn: We are not a franchise.
We lease our properties, and we lease our properties significantly
from a vast number of different developers and owners, most of
whom are local, small owners; so in terms of how our account is
made up, shall we say, our two biggest expenses are rent and labour,
both of those, obviously, mostly staying local therefore. Labour
is our biggest cost, clearly—we are paying that to local
people. We are reinvesting in the hotels themselves. A lot of
that work is, again, done by local people, so I think a lot of
the money is staying local.
Q382 Mr Sanders: What do you mean
by "rent"?
Mr Hearn: In terms of the developers.
As I said, a lot of our developers are local developers.
Q383 Mr Sanders: You said at the
beginning that the rent goes locally. Do you mean the business
rent?
Mr Hearn: Yes, I mean—
Q384 Mr Sanders: That goes to central
government.
Mr Hearn: No, sorry, that—
Q385 Mr Sanders: What percentage
of the people employed in your hotels are foreign nationals?
Mr Hearn: Apart from the cities,
the vast majority are local.
Q386 Mr Sanders: Overall?
Mr Hearn: Yes, absolutely.
Q387 Mr Sanders: Overall, over 50%
of the people who work in your hotels, in Travelodge, are not
foreign nationals?
Mr Hearn: Correct. As a business—
Q388 Mr Sanders: That is odd, because
the British Hospitality Association claim that 60% of everybody
employed in tourism, not just you but in tourism, are foreign
nationals. Have you got some sort of "only employ locals
first" policy?
Mr Hearn: What I would say to
you is two things. Firstly, we do not necessarily always agree
with the views of the BHA, and we are quite vehement in our disagreement
in terms of their description of British workers last week. I
think it depends on where the hotels are. I think the BHA were
probably talking on a national basis and, therefore—
Q389 Mr Sanders: But you are talking
on a national basis too.
Mr Hearn: I am, but what I am
saying is that there is a greater propensity of hotel rooms in
London, much more than our percentage of hotel rooms in London.
We have a lot of locations on the road-sides, at the motorway
service areas and other places like that, and those are mostly
local. I would say also that I am a member of Ken Livingstone's
London Skills and Employment Board. Travelodge was one of the
first companies to sign up with Local Employment Partnerships.
I am the Chair of the London Employer Accord for all the industry
and we are very focused on providing jobs for local people and
particularly those with long-term unemployed status. Yesterday
I was speaking at a conference on skills and jobs that the Prime
Minister attended. I think one of the great values that this industry
can have, if given the right support and everything else, is to
grow and provide jobs, because one of the issues that we have
got, particularly in a city like London, is that there are very
few entry-level jobs available to people to get them on to the
escalator, to take them up the skills escalator to get better
and better jobs. We at Travelodge, and other hotel companies,
can provide that, and we are very focused on that. We want 25%
of our future employees, as we open hotels round the country,
to come through local employment partnership schemes with Jobcentre
Plus, so we are very focused on that. We believe in that strongly
and as a company we have an excellent record of people coming
in—. A lot of our managers started off cleaning rooms, or
working on reception, or working in Little Chef, when that was
associated with the business, so I think that is part of what
we believe is potentially an opportunity missed, the job creation
opportunity that we bring.
Q390 Adam Price: You referred just
now to the comments made by Bob Cotton of the BHA, who describes
local workers, as far as the hospitality sector, as often being
unemployable. You do not agree with that, clearly, but is that
a general view away from the sector or is it just reflecting his
own personal position?
Mr Hearn: One of the things that
we would say here today is that we do not come here saying that
the tourism industry has got this right and we are just being
ignored by government. We think that we have got to change as
well, and we are certainly trying to do our bit in order to encourage
that. What we are talking about here is that we want more engagement;
we want the opportunity to put our case more strongly; we want
to work with government to fully exploit the opportunities that
this industry has. A poll in our trade magazine, The Caterer,
following Bob Cotton's comments and my comments back to him, indicated,
yes, unfortunately there was a number of people who felt the same
way as him. I think it is wrong. It is wrong to generalise, full
stop, and it is certainly wrong to generalise about British workers
in that way because, as I say, the majority of ours in Travelodge
are British and we think they are fantastic.
Q391 Adam Price: A different subject,
and I do not want to stray too much into another inquiry, but
you did mention the Olympics as a great opportunity for the sector.
You have expressed some concern that it might turn out to be a
missed opportunity.
Mr Hearn: Yes.
Q392 Adam Price: You are quoted as
describing London 2012 like buying the shiniest, most fantastic
car and then being too mean to put the petrol in potentially.
Could you explain your fears?
Mr Hearn: That is one of my better
sound-bites. One of the things we did recently was put together
a study with the Tourism Alliance to look at what made a successful
Olympics and, without question, the possibility of the four years
prior to the Olympics and the four years after the Olympics, if
handled well, are great opportunities for tourism, but the actual
year of the Olympics is questionable one way or another because
you lose as many as you gain, but it is actually those key lead-up
times. We get handed over the baton this year; Beijing is this
year and the next Olympics is London. The strategy which came
out for the Olympics was short on content and certainly short
on inspiration and possibility and seemed to feature mostly around
an improved grading scheme to try and get more hotels graded in
London, which I do not think actually is necessarily going to
improve the quality of what we have in London at all, if that
is what it is about to do, and certainly should not be the cornerstone
of what our tourism policy for the Olympics is. I think there
is a lot more we should do working together to make that happen.
Typically, our report came out and said, "We think actually
that the possibility is greater than the Government has said."
The Government was talking about a two billion possibility; we
were saying it could be close to three. The response to our report
was, "The industry will have to pull its socks up then",
which to me is not encouraging us to engage and try and come up
with better proposals. To get a slap-down when we come up and
suggest there is a greater opportunity, I think, is not helpful,
so we have real concerns that this fantastic opportunity we will
not optimise because not enough—whether it is in terms of
resource or planning—is being put into the tourism legacy,
shall we say.
Mr Dawson: Something that runs
alongside that is the emerging markets of India and China during
this period—the four years before and the four years afterwards.
The number of trips coming out of China will double in the next
ten years and they will not naturally gravitate towards England.
There is a whole load of new markets out there, especially in
the far eastern field, and there is no guarantee they are going
to come to us, but there is a great opportunity that we can invest
in to get those people over here.
Q393 Mr Evans: Looking at value for
money, would you say (Travelodge to one side) that people get
value for money out of the hotels in the UK, particularly London,
compared to Paris, Madrid, New York?
Mr Hearn: Compared to those cities,
I would say, yes. I fully understand the perception, but what
I think really does not matter, it is the consumer perception,
and London is perceived to be expensive. I think that, clearly,
having been responsible for running businesses such as Hiltons
and Marriotts and all sorts of others in the UK, there are good
reasons for that. London is very expensive and it is mostly about
the cost of property and the services associated with that. What
I think we need to do (and I would say this, would I not) is to
introduce more of our type of hotels into London so that there
is a better balanced value proposition for people. Because the
property values have been so high, developers have tended to develop
four and five-star hotels, so we have ended up with an expensive
city. Only in the last six or seven years has our type of brand
been able to afford to come into London and give that alternative.
We have a lot of stock in London, a lot of room stock, which really
is not of good enough quality, which is being sold to backpackers
or whatever, but, unfortunately, is part of what gets us a bad
reputation. If we are going to talk about grading schemes, then
we need to talk about grading schemes that have got teeth and
actually start sorting that kind of thing out so that we improve
the overall value perception of London, that we do offer cheaper
rooms, like ourselves, like a number of the other brands of our
ilk do, but also that it is decent quality.
Mr Dawson: Also, when you look
at most other industries, because generally we need to focus on
the mass market, if we look at Tesco, Primark, Ryanair, easyJet,
all the brands out there at the moment, the hotel industry is
completely different in that we are dominated by four and five-stars
and we do not have a demographic to match that, hence why 40%
of people are not staying away at all in the UK and it is only
a third that are using budget hotels. So, we need to turn that
round, and if you look at the more mature markets of France and
the US, budget branded is 33% in the US, France 24% and we are
running about 10%.
Mr Hearn: It is like an inverted
pyramid. The distribution of wealth in the country is like that,
and the hotels are completely the other way. That is part of what
we are trying to do in terms of making hotels more available.
Q394 Mr Evans: How many rooms have
you got in London at the moment?
Mr Hearn: We have got about three
and a half thousand. It is our stated aim to be the largest hotel
brand in the capital; we want to get to 7,000 rooms by the time
the Olympics comes round. It is a real struggle to find the properties,
and so on, but we are getting there.
Q395 Mr Evans: What is the average
price somebody is paying midweek for staying in Travelodges compared
to midweek staying in a Hilton, for instance?
Mr Hearn: At least half.
Q396 Mr Evans: It is at least half?
Mr Hearn: Yes, and at various
times of the year we will offer rooms at £19 in London, and
I know plenty of people who are alert to that to make sure they
get those rooms.
Q397 Helen Southworth: Very good.
You mentioned in your submission as well about people taking the
budget airlines co-incidentally in 1997 abroad to Spain and various
other countries, which means that the amount of domestic tourism
is not as great as it could be.
Mr Hearn: We think this is a real
issue. I think that part of what we are saying here is that tourism
needs to get on the agenda in terms of a lot of decisions taken
by government. It needs to make sure it is on the agenda when
it comes to transport policy, and so on. Without doubt, the budget
airlines have been the biggest single impact on that deficit and,
basically, could be seen as squeezing the life out of the British
holiday. The threat is not necessarily so much us, it is to see
all the people who are leaving the country now who were not before.
We have seen that growth from a four billion deficit to going
on for 20 now, and a lot of that is about the growth of the regional
airports as well, which was seen as a very sensible thing to do
but the facts are that London actually is masking a big deficit
of what is happening through the regional airports. In the north-west,
for every 1.3 million trips in from people abroad, five million
are going out. In the north-east it has got a deficit of two and
a half billion pounds, 400,000 trips in, 1.8 million out. For
every two foreign visitors that are coming into this country at
the moment five Brits are going the other way, and that speaks
volumes. I think it is partly about, let us get a policy through
which is joined up, which includes tourism in a lot of thinking,
like Spain. Everything that is done in Spain is part of the check-list.
You put together a policy: what is the effect on tourism? Tourism
needs to be raised up in terms of its importance in that way.
It is also about let us have a level playing field. There is no
VAT on flights, whereas Brits travelling have to pay. Within the
UK they are obviously paying on petrol and things like that, and
certainly they are paying VAT on hotels at 17.5%, again probably
double what they are going to pay in Spain. There is no VAT on
the flight, but I think that DCMS needs to call in the likes of
easyJet and Ryanair and say, "Ryanair, you are sending loads
of money back to Dublin here in profits which you are making out
of the British consumer. What are you doing to bring people coming
back the other way?", so that we get some decent marketing
for bringing people back into the UK rather than five going out,
two coming back in.
Q398 Mr Evans: You get the budget
airlines in and beat them about a bit with a stick. What else
should the Government be doing to improve domestic tourism here?
Mr Hearn: As I say, what we need
is a comprehensive plan. We have had two strategies before which
have not, for whatever reason, taken traction. I think we need
to involve government and industry in putting together a decent
strategy that works. What we are looking for is regeneration in
specific areas like the seaside resorts. I think we are looking
at involvement in discussions about transportation policy and
those kinds of things. What we are looking for is a real will,
a determination, a resolve, to put tourism up the agenda from
where it is today, because at the moment I think it is just seen
as something which is doing okay and, frankly, we are a bit embarrassed
about it because it is that service industry stuff and we do not
really like it very much.
Mr Dawson: One of the key problems,
as Grant started with, is that we do not understand the size of
the industry. Is it 100 billion, is it 85? There is no investment
in the software to capture till receipts. I believe it was the
Allnutt Report three or four years ago that suggested this was
an absolute necessity. That has not materialised. So, any good
business will need to understand the size of the market to project
what is going to happen in the future. If you cannot project you
cannot ask for funding and you cannot grow, and it is those basics
that we are missing and it is absolutely incredible.
Q399 Mr Evans: Can I say, in your
submission, and knowing what we do about Travelodge as well and
your plans for the future, you do not seem to have much faith
that the Government are going to do any of what you have just
suggested because you are going to put 100 new hotels into Spain,
are you not?
Mr Hearn: We have avoided going
overseas significantly because we have been so focused on the
UK. We believe the UK has such great opportunities for us still.
I ran Whitbread's budget brand before. We have seen that we have
moved. Despite our concerns about UK people using hotels, we have
seen that grow from one in five people who used to stay in hotels
in 1990 in this country to one in three. That is all about the
growth of the branded budget. So, we have grown significantly;
we think it can grow again; we think we can be three times the
size we are today in the UK, and that will always be our number
one priority, but, clearly, we are an ambitious company and we
feel that we have got something to offer here. We went over to
Spain and said we were coming there. They got the idea straightaway
with the headlines that Travelodge were bringing hotels to the
people. We think that is the next sensible step for us as a business.
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